| |
Gambling on agriservices
Business World — February
11, 2002
Balwant Singh is getting used to a new way of shopping for
fertilisers for his four-acre farm near Ujhani, Uttar Pradesh,
a small town 200km north-east of Delhi. All he has to do now
is go to the Tata Kisan Kendra (TKK), a one-stop shop for
agri-inputs set up by urea manufacturer Tata Chemicals, and
mention his name. The rest is done by a computer. It generates
an image of his field, shows him the fertility level and recommends
how much fertiliser to use.
Welcome to the new world of mass customisation, where farmers
like Balwant are being offered not only agri-products but
also agri-solutions. His village is among the 72 for which
the TKKs have acquired digitised field maps that profile the
farmer and the farm. The TKKs have created a GIS (Geographical
Information System).
A GIS-based data management system uses satellite images
and field maps to keep track of key parameters relevant to
farmers — weather, ground water and soil — almost
on a real-time basis. Using soil surveys, Tata Chemicals has
created a fertility grid of these villages that shows where
the deficiencies are. It has super-imposed satellite images
on these maps. This allows for better forecasting of trends
and pest attcks, and provides the exact status of a crop.
Tata Chemicals' vice-president (sales and marketing) Kapil
Mehan says, "If you know there's a pest attack, you can
go there and proactively advise the farmers before they come
to you and say, 'My crop is being eaten away by pests."
It all started when Tata Chemicals found that its product
looked no different from the urea produced by other companies.
"We wanted to differentiate our urea by packaging it
with value-added services and create a sustainable differentiator
(for the product)," Mehan says. Hence, Tata Chemicals
decided to help the farmer improve his productivity and profitability,
and the ability to manage his crop.
To that end it decided to provide farmers with a host of
agri-services that they would identify with the company. This
differentiator was certainly sustainable. "The idea was
to reach out to the farmers so that when the subsidies on
urea go, it (Tata Chemicals) would have a captive base,"
explains Zarin Daruwala, deputy general manager, agri- business
group, ICICI.
Tata Chemicals realised that differentiation would assume
importance in a free market. "They want to build a long-term
relationship with the farmer so that he sees value in the
services they provide, rather than just looking at buying
the inputs," says Brahmand Hegde, chief manager, agri-business
group, ICICI. Each TKK has its own team to advise farmers
on the right dose of inputs for a crop. It may even advise
the farmer to use less fertiliser and pesticide. Although
it means lower sales in the short term, it would build trust
that would help in the long run. But not all benefits are
indirect or long-term. The TKKs allow Tata Chemicals to cut
out some links from the urea distribution chain. The company
can bypass last distributors (C&F agents) and wholesalers,
and reach the retailer directly. That helps in improving margins.
Also, in areas where TKKs operate, Tata Chemials has a marketshare
of 25 to 30 per cent against an average marketshare of less
than 10per cent for the whole of Uttar Pradesh.
The firm plans to have 800 TKK franchisees in small mandis
in UP, Haryana and Punjab — its natural markets. These
will be supported by 40 mother centres (with soil-testing
laboratories, training facilities and warehouses for inputs).
Tata Chemicals says it has already put 25per cent of its planned
network (215 franchisees and 15 mother centres) in place.
Since there was no precedent, Tata Chemicals had to learn
the hard way, by making mistakes. It invested heavily in land
and buildings for each of its Rs 2 to 2.5 crore mother centres.
Of course, the revenue from these centres is equivalent to
what would otherwise have gone to the wholesalers. And if
TCL can increase its marketshare from eight to 25per cent
in UP, it can save on transportation costs as it will sell
a higher proportion of its produce closer to its plant in
Babrala, UP. But the TKKs don't charge for the advice which
is something it needs to look at.
The franchisees are better off as they need to invest about
Rs 3 lakh only. They largely make money retailing agri-inputs,
though Tata Chemicals is trying to develop other revenue streams
like hiring out agri-implements. Mehan says the franchisees
now earn a return of 30per cent on their investment. For instance,
compared with 200 to 250 tonnes of urea a year or the 4,000
to 5,000 bags a normal outlet sells, TKK franchisees sell
atleast 1,000 tonnes or 20,000 bags a year.
At a margin of about Rs 6 a bag, a franchisee earns enough
to sustain his business. Plus, he makes money on other inputs.
While retail business is less capital-intensive than wholesale
by its very nature, the retail margins in urea (Rs100 to Rs150
a tonne), are higher than wholesale margins (Rs 50 to Rs 80
per tonne). Also the dealer gets to work with a large company,
and can build up a strong relationship with the farmer. As
for TKKs, in order to improve their viability, especially
of the mother centres, it needs to add more revenue streams
and bridge the gaps in its model by bringing in credit and
market access.
|
